Divisional Court Overturns First Franchise Certification

In reasons released on October 3, 2000, Ontario Divisional Court overturned the certification of the first class action against a franchisor in Canada. A franchisee alleged that the franchisor, Bulk Barn Foods Limited, had breached its contractual obligation to supply products at prices equal to or lower than prices of competitive suppliers in the franchisee’s local market. The franchisee also sought to characterize this as a breach of a fiduciary duty or breach of an agency relationship.

The Court held that for purposes of certifying a class action there was no fiduciary relationship or agency relationship between Bulk Barn Foods Limited and its franchisees. The Court also held that the number of individual issues raised would make a class action completely unmanageable.

The significance for franchisor-franchisee relationships is that they do not necessarily lend themselves to class actions. The courts will require franchisees to establish common issues that would make a class action preferable over regular litigation for purposes of litigating franchise disputes.

Larry Lowenstein, Joseph Starkman and Tara James of Osler, Hoskin & Harcourt LLP represented Bulk Barn Foods Limited. Michael McGowan and Kirk Baert of McGowan & Associates and David Sterns of Sotos Associates represented the franchisee.